An extension of Sports Business News, the largest online sports business news service -- featuring the comments and insights of SBN Publisher Howard Bloom

Thursday, January 31, 2013

Countdown to Super Bowl XLVII – the economic misnomer

The
Big Easy’s hotel rooms are filled this weekend, Super Bowl XLVII is set
for Sunday. Super Bowl XLVII managed to extend Mardi Gras, or least
put that party aside for a few days. Because of the Super Bowl
festivities the New Orleans Mardi Gras krewes (parades) are taking the
weekend off. If Super Bowl XLVII wasn’t being played at the Superdome
Sunday, Mardi Gras celebrations would continue, hotel rooms throughout
the Louisiana city would be filled to capacity with Mardi Gras
celebrants.

According to a New Orleans Times Picayune report a sampling of Super
Bowl economic impact studies shows a reported $292 million spending
boost in Atlanta for 2000, a $367 million benefit in San Diego in 2003, a
$261 million spike in Detroit in 2006, a $463 million wave in Miami in
2007, a $500 million gain in Arizona in 2008 and a $384 million bump in
Indianapolis last year. New Orleans saw $249 million in 1997 and $299
million in 2002.

"We're all fond of saying, 'Move the decimal point one place to the
left and you're more accurately predicting what the impact will be,'"
economist Rob Baade of Lake Forest College
in Illinois said about Super Bowl economic impact studies in a New
Orleans Times Picayune report. "You really need a kind of dispassionate,
objective appraisal."

Hosting the Super Bowl makes sense in helping to promote tourism in
the city hosting the game – regardless of whether or not New Orleans
hosted Super Bowl XLVII the city remains a tourism destination.

Most Super Bowls are held in warm weather cites. Miami has hosted ten
Super Bowls. New Orleans, home to Mardi Gras every February, hosts
their tenth Super Bowl this weekend. Tampa, San Diego and Phoenix have
each hosted multiple Super Bowls in late January or early February.
Those five cities are tourist destination points. If those cities
weren’t hosting Super Bowls in late January or early February, most of
their hotels would still be filled with tourists. Those five cities host
conventions during the winter months. In simpler terms, four of those
five cities are each busy this weekend and they’re not hosting the Super
Bowl. The lone exception, New Orleans the games host this year.

Detroit has hosted two Super Bowls and last year Indianapolis hosted
Super Bowl XLVI. In the cases of these three Super Bowls, it is a safe
assumption hotel rooms in Detroit or Indianapolis wouldn’t be filled
unless the Super Bowl was there.

Patrick Rishe offered a number of interesting points regarding the
“economic impact of a Super Bowl” in a Forbes Magazine report:

• Super Bowls do confer net economic benefits in terms of new visitor
spending from fans, corporations, and the media…and that there can be
lagged non-local spending benefits as well as real-time cost savings associated with the media value that hosting the Super Bowl can confer upon one’s city;

• Most Super Bowl impact estimates tend to be inflated (some widely
so) because they don’t properly account for all the factors which
ultimately pull net impact estimates well below gross impact estimates.

Dr. Rishe, Director of SportsImpacts, a national sports consulting
firm that has conducted economic impact studies for two Super Bowls,
three Final Fours, and more than 70 projects all together since 2000,
believes that many Super Bowl economic studies fail in what they’re
supposed to do by:

• Not properly sorting “locals” from “non-locals”…and though the
“vacationing at home” argument has validity, some over-estimate the degree to which this effect is applicable;

• Not accounting for the fact that ticket revenue, NFL merchandise,
and similar itemized expenditures don’t stay within the host city
because that revenue is ultimately slated for the NFL’s pockets or that
of some non-local supplier;

• Not accounting for monetary leakages of various types…non-local
suppliers taking money out is one example, and any restaurant or hotel
with a national headquarters based outside of the host city yields some
additional leakage which reduces the impact of the Super Bowl;

• Not accounting for displacement or crowding out effects.

The Dallas Morning News reported that Planalytics, a business weather
intelligence firm in Pennsylvania, suggested the economic impact for
Super Bowl XLV (held in Dallas in February 2011) had an economic impact
of between $200 million and $250 million. Spending at last year’s Super
Bowl was impacted by terrible weather in Dallas. Hotel rooms were
filled, but tens of thousands of Super Bowl visitors stayed in those
hotel rooms when ice storms plagued Dallas in the days before Super Bowl
XLV. The ice storms cost Dallas retailers at least $25 million.

"I was surprised. I thought the impact from the weather would have
been much greater," Scott A. Bernhardt, chief operating officer at
Planalytics, told The Dallas Morning News. "After Tuesday, everything
just stopped, but the floodgates opened on Thursday."
Per person spending between Thursday and Sunday at Super Bowl XLV
averaged $1,200, Bernhardt said. At recent Super Bowls, spending usually
worked out to about $1,000 per person.

"The debate over economic impact has been going on in the academic
literature for about twenty years," Craig Depken, an associate professor
of economics in the Belk College of Business at UNC Charlotte, told The
Daily Finance.com. "Generally speaking the economics literature has
found little evidence to support the idea that mega-events such as the
Super Bowl or the Olympics generate the net economic impacts predicted
by event promoters/advocates."

"The studies [saying there are big benefits from the Super Bowl] are
just guesses, not studies," says Philip Porter, a professor of economics
at the University of South Florida in Tampa. "While there is a lot of
money being spent there is no opportunity for the city to grab it."

"We think the NFL has an impact far beyond the game itself and people
who come to the game," University of New Orleans economist Janet
Speyrer told the New Orleans Times Picayune. "My sense is it will have a
positive and lasting effect for some time.

"Usually the comparison still leaves a positive number when it's the Super Bowl," Speyrer said.
It’s expensive to host a Super Bowl week. Infrastructure costs can
cost close to $100 million, with security the most expensive taxpayer
paid component of hosting a Super Bowl.

"Everyone is coming up with the answer that the Super Bowl is good
thing, but it turns out to be a good thing that's less than half, and
sometimes as much as a tenth," of common estimates, economist Victor
Matheson at College of the Holy Cross in Massachusetts said in the New
Orleans Times
Picayune report.

"There's no doubt that the Super Bowl is a big event," he said. But,
"they do a really good job adding and multiplying. The problem is they
don't do a good job subtracting."

Following Super Bowl XLVI in Indianapolis, the local organizing
committee offered an economic study and impact report following the
February 2012 event.

"Super Bowl spending by residents was eliminated wherever possible;
arguably those expenditures would have taken place without Super Bowl
XLVI," the report said. "Spending streams that immediately left
Indianapolis were also subtracted. Examples include game ticket
purchases or operational expenditures that went to businesses outside
the area. Where identified spending streams lacked sufficient data, they
were not included."

That study believed the Super Bowl created a gross contribution to
the Indianapolis economy of $384 million. It narrowed total spending
from sources outside the region to $342 million the study eliminated
$46.9 million in displaced tourism business, believing Super Bowl XLVI
had an a $295 million net contribution to the Indianapolis economy.
The study again offered by the Indianapolis Super Bowl host committee
said businesses that worked directly with Super Bowl events and
customers took in $176 million. The Indianapolis study concluded that
the event amounted to "a huge economic and fiscal windfall for the
region."

New Orleans Super Bowl Host Committee President Jay Cicero spoke with
the New Orleans Times Picayune offering his own spin on the benefits of
hosting Super Bowl XLVII.

"You mean to tell me they would've had that amount of business,
paying that amount of money, without the Super Bowl being here," Cicero
said about local companies. "Would they be doing the same amount of
business on the first weekend of Mardi Gras? The answer is no."

"It just dwarfs everything out there," Cicero said. "You can see with your own eyes. This isn't a small event.

The National Football League wanted New Orleans to host a Super Bowl
as part of the league`s belief in the city and the cities recovery from
Hurricane Katrina. New Orleans hosts a party like few cities in the
world can. That said, the economic benefits might not be as great as
organizers would like to believe, but it is an event that for the most
part offers tremendous benefits to a host city.

About Me

The evolution of Howard Bloom’s career took a dramatic change in the spring of 1997, when Howard began publishing SportsBusinessNews.com. In its fifteen years, SBN has evolved into the largest and one of the most influential sports industry publications.